The nation’s 100 largest defined benefit pension plans experienced a $30 billion improvement during January, resulting in a funding deficit of $434 billion, according to Milliman Inc.’s latest Pension Funding Index.  The strong month follows a year in which interest rates drove the pension funding deficit to historic levels.

“Interest rates actually cooperated this month – or at least they didn’t go down,” said John Ehrhardt, co-author of the Milliman Pension Funding Study. “The lack of interest rate movement allowed these pensions to take advantage of a 2.49 percent investment gain for the month and recoup some of the funding loss that characterized 2011. With the Fed committing to low rates through the end of 2014, we’re going to need more months like this if we are going to fill the pension funding gap.”
In January, the projected benefit obligation for the pensions remained static at $1.685 trillion as interest rates moved from 4.25 percent to 4.26 percent. The strong month for assets left the year-to-date asset value at $1.251 trillion.

Looking forward, if these 100 pensions were to achieve an 8 percent median asset return and if the current discount rate of 4.26 percent were to be maintained throughout 2012 and 2013, the pensions would narrow the funding gap from 74.2 percent to 79 percent by the end of 2012 and to 84.4 percent by the end of 2013.